THE Crown Estate’s controversial sale of Fort Kinnaird Retail Park in Edinburgh which has been described as a “money grab” by Scottish politicians has helped boost investment in commercial property in Scotland to a new record.

Levels of investment in Scotland’s commercial property market hit a record high in the second quarter of 2018 following a sluggish start, thanks in part to the resurgence of domestic investors, according to JLL’s half year capital markets review.

The largest single outright sale was the “money grab” in which the Crown Estate that is otherwise devolved to Scotland hung on to a 50% share in Fort Kinnaird before selling it to London-based M&G Real Estate for £167 million, none of which will be guaranteed to be spent in Scotland.

The Scottish Government has protested to the UK Government over the deal, but otherwise will be pleased at the resurgence in the commercial property market, always a key indicator of economic well-being.

Despite a sluggish first quarter of 2018, a record total of £1.4 billion was invested between January and June this year, an 86% increase on the same period in 2017, and well above the UK average volume growth of 23%. This has been driven by the major cities, with £692m traded in Edinburgh and £344m in Glasgow.

According to JLL, the fallout from the Scottish referendum in 2014 saw many UK institutions exercise greater caution for a number of years, opening the door to investors from Europe and further afield. However, during the first two quarters of 2018, UK funds have been far more active than they have been in the previous six months, especially for larger assets and prime opportunities in Scotland.

UK based Hermes Real Estate recently acquired the Glasgow office development Skypark, paying around £80 million for the 550,000 sq ft property which employs 4500 people across 50 businesses. JLL worked for Hudson Advisors on the sale.

Other key deals involving domestic investors in the first half of 2018 include Aberdeen Standard Investments’ purchase of a 113-unit residential block build to rent (BTR) scheme in Edinburgh for £27.5m. At the turn of the year, Rockspring Property Investment Managers acquired a prime office and retail opportunity at 9-10 St Andrew Square for £25.75m.

Chris Macfarlane, director at JLL, said: “There is no suggestion that international investors have lost interest in Scotland, but it’s clear that UK funds have found a renewed confidence and the fire power to compete for the biggest deals. A dearth of quality stock has meant that when prime opportunities do come to the market, particularly for larger lot sizes, pricing is holding up well.”

The office sector has seen the most activity, but the largest deals were for Fort Kinnaird Retail Park and the Waldorf Astoria hotel at £85m highlighting Scotland’s broad appeal.

Also significant was M&G’s purchase of Haymarket in Edinburgh for £49m, ahead of a proposed £300m redevelopment.

Macfarlane added: “As appetite for risk remains comparatively low, the premium attached to long income will continue to increase.

“Offices in Glasgow will also continue to do well thanks to their comparative value compared to other regions in the UK. We also think that the second half of the year will see further yield compression especially for office and industrial stock in Scotland.”